This week I conclude my look at the importance of network size, financial stability and culture and this will bring me neatly on to the subject of service standards.
The size of the network and its negotiating power with lenders and insurers is not a straight-line graph but more a step function. You have to meet certain targets or volumes of business before you can expect higher procuration fees from the lenders.
However, it is relatively easy for a medium-sized network to achieve the maximum procuration fee levels which means that no further benefits accrue as the network increases in size.
So as a network becomes bigger, it does not automatically follow that the proc fee payments increase at the same rate. For a prospective AR of a network there is no substitute for checking out the proc fees on offer and if the network charges a percentage of your income, these fees will be reduced accordingly before they are paid to you.
In last week's issue we touched on the inherent financial stability of some of the larger networks that are subsidiary companies of larger organisations. For most other networks – mainly those set up by packagers – it is not easy to check their financial details.
You can log onto www.companieshouse.co.uk and download a set of accounts for the princely sum of £4 but some of the networks are not limited companies, just trading names. For those that are limited companies, some file abbreviated accounts which are worse than useless, some are an unfathomable labyrinth of associated and subsidiary companies where money can be passed around and eventually back into the original company, while others' records can (legitimately) be over 18 months out of date and a poor indicator of current financial status.
Don't forget that many networks have spent serious sums of money over the past 12 months in setting up their compliance infrastructure plus administrative and computer systems, and ongoing marketing to prospective ARs. Mortgage Intelligence and Pink Home Loans have quoted figures in excess of £1m spent while the figure for Network Data is around £750,000.
These costs will not be reflected in an old set of accounts and, on the flip side, how do you tell how much new money has been pumped into these networks in the past 12 months?
But at least spending the money shows a level of commitment, which is more than you can say for 20 or so of the smallest networks that seem to be operating on a shoestring, perhaps with the objective of a quick sale rather than developing a viable long-term business operation, if not having been sold already.
Moving on to culture, this is an emotive word – what does it mean anyway? Would you prefer to be part of small cosy network without some of the material benefits of its larger brethren? At least you get to meet the chief executive on a regular basis.
This may be superficially attractive, but what happens when the personnel changes?
Perhaps you would be happier as part of a larger network that passes on the benefits of the economies of scale but sacrifice those closer personal relationships.
Culture may be seen as a state of mind. You can compare the innovative ways of the new mortgage networks with the bureaucracy and layers of management in the 15 year old IFA networks – not to mention the impenetrable web of corporate life at the insurance companies which has evolved over a couple of hundred years or so.
Service standards are likely to follow closely in the footsteps of network size and culture.
The smaller networks with their packager backgrounds are likely to be still managed by an entrepreneurial character who sits there with his or her sleeves rolled up, maintaining a careful watch over the activities of the packaging staff.
But as the operation becomes larger, it must evolve a defined set of procedures, rigorous monitoring of activity levels, staff motivation and extras layer of management. The entrepreneur becomes increasing detached from the day-to-day operations and this will not suit certain characters. I know, I've been through this and it takes time to adjust to a new working environment.
During the changeover there may be periods where service standards take a dip before they recover and eventually exceed the original standards. This is a general problem with service standards; past record is not necessarily a good indicator of future performance.
Most organisations will go through periods where the volume of packaging business dropping through the letterbox is rising at a faster level than the availability of human resource to process the applications. Service standards drop, the volume of new business drops accordingly, the resource level problem is resolved, service standards increase, and on to the next cycle.
The larger organisations should at least have more stable volumes of business and the ability to stay one step ahead to prevent volatile swings in their service standards.
10 key features of a network
(Dates subjects covered on this page in brackets)
Mortgages – product range and procuration fees (May 24)
The lender panel and product range should be large enough to ensure that you are able to select the best products for your clients.
Insurance – product range and commissions (May 31)
You should have access to a good range of products from well-known household names that are easy to sell to your clients.
Point-of-sale quotation system (June 7)
Essential in order to search over whole of market, to provide best advice and to produce FSA-prescribed documents.
Network membership fees (June 14)
What do you get for your money?
Network size, financial standing and culture (June 21)
Track record, stability, and strength through size.
Service standards (June 28)
Fast and efficient processing of all administrative issues including any mortgage packaging and the prompt payment of fees owing to you.
Compliance monitoring (July 5)
Conducted in an efficient manner which causes minimum disruption to your business.
Professional indemnity insurance (July 12)
Mandatory under the FSA rules, but who pays?
Training and competence (July 19)
Are you provided with training and help with exams?
Exit strategy (July 26)
If you decide to leave your principal firm the break-up should be as painless as possible.